This note reviews Korea’s fiscal policy and public debt management, and discusses some of the constraints that bind the Bank of Korea in its conduct of monetary policy. Fiscal prudence and low public debt in Korea have allowed monetary policymakers to focus on inflation control without worrying about public debt dynamics. Such fiscal prudence is mainly attributable to the strong and long-standing commitment to a balanced budget. However, recently, fiscal policy has been managed in a more countercyclical manner within the framework of medium-term fiscal planning. During the recent global financial crisis, Korea implemented large-scale countercyclical fiscal policies to counteract the contractionary effect of the crisis. Meanwhile, the Korean government bond (TB) market has grown rapidly. Such a development can potentially be helpful for implementing countercyclical fiscal policy against crises, by acting as a low-cost funding source during crises. (The rest omitted)